Tommy buys only soda and pizza and is buying the amounts that maximize his utility. The marginal utility from a soda is 5 and the price of a soda is $1. The marginal utility from a slice of pizza is 10. The price of a slice of pizza must be
A) $10.
B) $2.
C) $1.
D) some amount that cannot be calculated without more information.

Question

Quizplus · Accepted Answer

To maximize utility, the marginal utility per dollar spent should be equal for all goods. Therefore, the price of a slice of pizza should be $2, as 10 (marginal utility of pizza) divided by 2 (price of pizza) equals 5, which is the same as the marginal utility per dollar for soda (5/1).

Tommy Buys Only Soda and Pizza and Is Buying the Amounts